Excited, a little unsure, and needing a second (or more) opinion

[Rollin]

Here is my “situation”:

I’d like to officially RE on October 31, 2015 (30 years with the “company” and 54 years old), but I am unsure of the “numbers” that I have put together and would like the FI part to be true.  I’d like to know if these FIRE numbers sound reasonable to those of you that have done this before, or at least are very familiar with these scenarios.

My goal is to cover what I consider our normal expenses, plus have $24,000 remaining/year.  What I consider our normal expenses are as follows:

$30,500 - for my home (includes mortgage, insurance, taxes, power, water, and maintenance) – only debt
$3,950 - for our rental (insurance, taxes, and maintenance) – it is paid off
$2,280 - for “communication” (internet and phones – no TV!)
$9,400 - two vehicles, one motorcycle, and one boat (fuel, insurance, maintenance)
$19,000 - for groceries and eating out (family of 5, multiple facepunchable, but I’ll address when I RE)
$4,000 - post-retirement health insurance for the two adults

$69,000 – total “normal” expenses

My mostly after-tax income for 2016 (first FIRE year) will be:

$0  - for current employer (FIRE !!!)
$28,500 – savings to carry-over from 2015
$27,500 – pension (pre-tax)
$12,000 – 401K of $300,000 at 4% SWR (pre-tax)
$2,400 $4,320– other $118,000 $120,000 cash investments at 4% SWR (pre-tax)
$16,600 – life insurance annuity (lifetime payout, no principal or SWR applied) – not taxable
$10,700 – DW’s child support (stops in a few years) – not taxable
$6,000 – DW’s income (pre-tax)
$14,400 – one SF rental income (pre-tax)

$118,100 $120,000– total income (includes carry-over from 2015)
$64,300 taxable and $55,800 non-taxable

I know this is simple math and rounding ($120,000-$69,000=$51,000, that is $51,000 and not my goal of $24,000) and I am over my goal for 2016, but expect to carry all excess over to 2017 and so on.  Doing this I should not have to supplement my income until 2021 (with $9,700) mainly due to a drop in child support over the years.

Am I missing anything?  Any questions that you have that might help me solidify my scenario?

EDIT-to correct one math error.

[MDM]

With expense (mortgage) and income (child support) amounts that do not recur forever, using a time-dependent retirement calculator seems best.  E.g., see http://www.bogleheads.org/wiki/Retirement_calculators_and_spending.

For quick 'n' dirty estimates, you could
 - remove mortgage payments from your expenses and add current mortgage principal to your "stash required."
 - remove child support from your income and add the present value of expected payments to your "stash available."

How does that look to you?

[Rollin]

Wow, thats a lotta calculators!  I'll look through them to see if what I have started in my Excel spreadsheet works with one (and that I understand the calculators in the first place).

I understand the child support comment (I have added that and others to my net worth sheet - bringing me to $1,900,000), but I don't understand what is meant by changing the mortgage from expenses to principal and "stash required".

[MDM]

Often one sees people analyzing "Am I FI so I can RE?" by dividing (anticipated annual expenses in retirement, minus ongoing annual income) by their assumed SWR, and comparing that quotient to their "stash required" (aka investment balance).  The mortgage comments were made in that context.

Just for a place to start, www.cfiresim.com, the Fidelity tool, and www.i-orp.com are worth a look.  Quicken's Lifetime Planner is also good (especially if you have your finances in Quicken already).

[former player]

You say you want a post-retirement income of $93,000 per annum.   If you want that level of income for the rest of your life, you are not there yet, as your figures for 2016 contain a number of "cheats" -

1.  You are counting "$28,500 savings from 2015" which will not be available in the future.
2.  Your pension and 401k amounts are pre-tax.
3.  $2,400 is being taken from cash investments which are probably not generating 4% after inflation, so this is not long-term sustainable.
4.  $10,400 is child support which has a limited number of years left.
5.  You haven't allowed for potential voids and other large expenses on the rental.

On the other hand, if you put $148,500 (your 2015 savings plus cash investments) into the stock market you get a permanent $6,940 income at 4%.  Then add in your pension, 4% from your existing investments, annuity, $6,000 wife's income, $7,700 for the rental, then calculate the tax payable, you have an income you can rely on for the forseable future, with a booster from the child support for the next few years to make it all even safer.  Could you live on that?

[G-dog]

How are you taking $ out of your 401k before you are 59.5 yo?

Feels like there are missing expenses (maybe that is what the 24k is for ) - like clothing, school/kid care, kids activities. May be grouped in there with something else. Also, no travel or vacation expenses? Or expenses on the rental property (rolled in as total housing cost)?

[Ricky]

$2,400 – other $118,000 cash investments at 4% SWR (pre-tax)

Might want to re-check that line.

[Rollin]

Often one sees people analyzing "Am I FI so I can RE?" by dividing (anticipated annual expenses in retirement, minus ongoing annual income) by their assumed SWR, and comparing that quotient to their "stash required" (aka investment balance).  The mortgage comments were made in that context.

Just for a place to start, www.cfiresim.com, the Fidelity tool, and www.i-orp.com are worth a look.  Quicken's Lifetime Planner is also good (especially if you have your finances in Quicken already).

I get that now - thanks.  I'll check out those calculators.

[Retired To Win]

... I know this is simple math and rounding ($118,000-$69,000=$49,000, that is $49,000 and not my goal of $24,000) and I am over my goal for 2016, but expect to carry all excess over to 2017 and so on.  Doing this I should not have to supplement my income until 2021 (with $9,700) mainly due to a drop in child support over the years.

Am I missing anything?  Any questions that you have that might help me solidify my scenario?

The one reason I have for giving your plan an A-OKAY without a whole lot of nitty gritty analysis is that you have HUGE amounts of slack built into your financial projections.  If anything goes wrong, you have LOTS of room to pull in your horns without going through much of any lifestyle shrinkage.  Based on my core belief that the earlier you retire, the better because you'll have more remaining life time to enjoy job-free, I say go ahead and FIRE.

So you can have at least one example to compare against, here is mine.  I FI/REd 14 years ago.  My passive income has actually grown quite a bit since then.  And, AFTER retiring, I found ways to reduce my core living expenses by 42% WITHOUT sacrificing anything (except the weekly house cleaner).  End result: I am now at roughly $43,000 in annual passive income and under $15,000 in basic living expenses.

So... you can see why I view your situation as being very flush and retirement ready.

Good luck.

[EscapeVelocity2020]

I know you mean well Alex, but there is mention of 'family of 5' in the 19,000 grocery budget.  Rollin is not you and probably does not aspire to live like you do, at least not in the next few years.

One thing I noticed is that you are planning to retire at 54 y.o..  Most 401k's will allow you to withdraw without penalty if you retire at 55.  OMY (one more year) may also have other significant benefits, which will push you into an 'even more secure' position, but only you can weigh these against grinding out another year at the office.

I do agree with RTW's general theme that you apparently have lots of flexibility to make it work if you really want it to, especially with a high budget and less dependent on stock market return.  I'd be interested to hear your thoughts on OMY.

[Rollin]

You say you want a post-retirement income of $93,000 per annum.   If you want that level of income for the rest of your life, you are not there yet, as your figures for 2016 contain a number of "cheats" -

1.  You are counting "$28,500 savings from 2015" which will not be available in the future.
2.  Your pension and 401k amounts are pre-tax.
3.  $2,400 is being taken from cash investments which are probably not generating 4% after inflation, so this is not long-term sustainable.
4.  $10,400 is child support which has a limited number of years left.
5.  You haven't allowed for potential voids and other large expenses on the rental.

On the other hand, if you put $148,500 (your 2015 savings plus cash investments) into the stock market you get a permanent $6,940 income at 4%.  Then add in your pension, 4% from your existing investments, annuity, $6,000 wife's income, $7,700 for the rental, then calculate the tax payable, you have an income you can rely on for the forseable future, with a booster from the child support for the next few years to make it all even safer.  Could you live on that?

Former Player - good questions that have me doing just what i need - and that is to dig deeper to ensure that I'm not to far off.  If you still see holes please let me know, as I am not being defensive in my responses, just trying to give a better picture.  After all, this is a scenario where I don't touch my stash and doesn't include the couple of offers to start some consulting work, and my own business (which I plan to do) to have fun and add a cushion.  I make good money now, but want to roam the counter, do other things for money, and get out of the public eye (that is a very brief rendition of why I want to leave).

I'll give a little more information that hopefully will round out the discussion:

1. My income for 2015 will be about $130,000 after taxes so I have a lot to carry over. to 2016 and beyond (if I stay at needing $93,000/year in income;
2. Ouch on the pretax as I probably need to reduce those to after tax - do you agree?  BTW - it is actually a 457K (not 401K) and I can take it out penalty free anytime I officially retire;
3.  I agree with you that 4% SWR is not sustainable as it has been more like 2% before factoring in inflation.  Would you or anyone else suggest a better short term SWR;
4.  I reduce the child support throughout the scenario, and make up for it with a little more carry-over (in 2020 it all runs out), a slightly increased rental income and the DW's income; and
5.  Could be a big ouch on the rental, but I factor in a small amount of maintenance each month which I have not had to use in years.  The AC was just replaced and the house is in good shape.  The current renter looks to stay a number of years.  However, I agree with you as this part could go haywire.

I do need t add that I have a pretty good stash of cash, can bring in additional income if necessary, but mainly want t see if I could RE if "all goes well."

As to your lat question "could I live on" what you described and the answer is yes, I could, but DW maybe not.  It might depend on if we could reduce our spending more once I retire.  I have that stuff pretty optimized so far.

BTW - great big thank you and looking forward to any additional comments.

[Rollin]

How are you taking $ out of your 401k before you are 59.5 yo?

Feels like there are missing expenses (maybe that is what the 24k is for ) - like clothing, school/kid care, kids activities. May be grouped in there with something else. Also, no travel or vacation expenses? Or expenses on the rental property (rolled in as total housing cost)?

Sorry that I said 401K, as it is a 457K (no early penalty).

The $24,000 would be used to pay for the "missing expenses."  I do need to add that we have 3 children now, but one is moving out in July.  I have not reduced expenses yet due to this as I wash;t sure of the impact and will see what the numbers look like.  At this pint my scenario would be considered a conservative if I keep them the way they are, but dropped one dependent.

[Rollin]

$2,400 – other $118,000 cash investments at 4% SWR (pre-tax)

Might want to re-check that line.

Oh yes, it should be $4,320!  Thank you.  That bumps the $118,000 to $120,000.

[Rollin]

... I know this is simple math and rounding ($118,000-$69,000=$49,000, that is $49,000 and not my goal of $24,000) and I am over my goal for 2016, but expect to carry all excess over to 2017 and so on.  Doing this I should not have to supplement my income until 2021 (with $9,700) mainly due to a drop in child support over the years.

Am I missing anything?  Any questions that you have that might help me solidify my scenario?

The one reason I have for giving your plan an A-OKAY without a whole lot of nitty gritty analysis is that you have HUGE amounts of slack built into your financial projections.  If anything goes wrong, you have LOTS of room to pull in your horns without going through much of any lifestyle shrinkage.  Based on my core belief that the earlier you retire, the better because you'll have more remaining life time to enjoy job-free, I say go ahead and FIRE.

So you can have at least one example to compare against, here is mine.  I FI/REd 14 years ago.  My passive income has actually grown quite a bit since then.  And, AFTER retiring, I found ways to reduce my core living expenses by 42% WITHOUT sacrificing anything (except the weekly house cleaner).  End result: I am now at roughly $43,000 in annual passive income and under $15,000 in basic living expenses.

So... you can see why I view your situation as being very flush and retirement ready.

Good luck.

You think like I do -"Retiring too early is a mistake you can recover from. Too late and there is no recovery."

I may be able to reduce that grocery bill considerably once I RE too, just like you have.  However, I don't want to count on that just yet.

[Rollin]

I know you mean well Alex, but there is mention of 'family of 5' in the 19,000 grocery budget.  Rollin is not you and probably does not aspire to live like you do, at least not in the next few years.

One thing I noticed is that you are planning to retire at 54 y.o..  Most 401k's will allow you to withdraw without penalty if you retire at 55.  OMY (one more year) may also have other significant benefits, which will push you into an 'even more secure' position, but only you can weigh these against grinding out another year at the office.

I do agree with RTW's general theme that you apparently have lots of flexibility to make it work if you really want it to, especially with a high budget and less dependent on stock market return.  I'd be interested to hear your thoughts on OMY.

OMY is really cushy and opens up more options that I have not mentioned.  For example, I could reduce my expenses a lot by taking my vacation time of six months while staying on the payroll.  That would of ford me and the DW health insurance for six more months.  It would also alls my to stash more cash and put more into my 457K.  Do yes, OMY would solidify this.

Actually, it is a little less than OMY, I have a second scenario of leaving April 16, 2015.  One drawback t that extra time though is my chance to make good $$ consulting part-time may not be available (but then again I wouldn't need it as much by then either!).


I am very receptive to additional comments and hope I have not scattered the responses so much that the big picture is no longer visible.  I will attempt to calculate the after tax on the income and I will plug in a more realistic SWR once I get one.  That will allow me to adjust what I have, and I will try and do that in a comprehensive re-submission so as to keep it clear.

Thank you, thank you!

[EscapeVelocity2020]

And thanks for the reply.  Why would you not consider OMY then?  I guess that is where I (as a 41 y.o. with no 'real' OMY benefits wonders, as opposed to you who has extra 401k and IRA contribution provisions....  You've made it this far, OMY is like HUGE!  Like you can teach us a thing or two about how to have so much funding that you don't feel retired at all :)  Just throwing that out there...

[Rollin]

And thanks for the reply.  Why would you not consider OMY then?  I guess that is where I (as a 41 y.o. with no 'real' OMY benefits wonders, as opposed to you who has extra 401k and IRA contribution provisions....  You've made it this far, OMY is like HUGE!  Like you can teach us a thing or two about how to have so much funding that you don't feel retired at all :)  Just throwing that out there...

Ha, to be or not to be, that is the question.  Yes, OMY is on the table, but I wanted to get the calculations right for October 31, 2015 as that is my 21 year anniversary at the "job".  I had 9 years prior in the same profession, but just a slightly different employer.

[EscapeVelocity2020]

And thanks for the reply.  Why would you not consider OMY then?  I guess that is where I (as a 41 y.o. with no 'real' OMY benefits wonders, as opposed to you who has extra 401k and IRA contribution provisions....  You've made it this far, OMY is like HUGE!  Like you can teach us a thing or two about how to have so much funding that you don't feel retired at all :)  Just throwing that out there...

Ha, to be or not to be, that is the question.  Yes, OMY is on the table,but I wanted to get the calculations right for October 21, 2015 as that is my 21 year anniversary at the "job".  I had 9 years prior in the same profession, but just a slightly different employer.

Well, working folk are always more motivated to optimize.  You have extra 401k and IRA contribution limits.  And your penision surely is better going forward.  That was all I was trying to say, tell us what the OMY pros are vs. the cons.  I'm curious.

[Rollin]

And thanks for the reply.  Why would you not consider OMY then?  I guess that is where I (as a 41 y.o. with no 'real' OMY benefits wonders, as opposed to you who has extra 401k and IRA contribution provisions....  You've made it this far, OMY is like HUGE!  Like you can teach us a thing or two about how to have so much funding that you don't feel retired at all :)  Just throwing that out there...

Ha, to be or not to be, that is the question.  Yes, OMY is on the table,but I wanted to get the calculations right for October 21, 2015 as that is my 21 year anniversary at the "job".  I had 9 years prior in the same profession, but just a slightly different employer.

Well, working folk are always more motivated to optimize.  You have extra 401k and IRA contribution limits.  And your penision surely is better going forward.  That was all I was trying to say, tell us what the OMY pros are vs. the cons.  I'm curious.

I'll have $320,000 in the 457K (as posed to $300,000)
6 additional months of salary - $35,000 after taxes
My pension is about $1,000 more per year
I'll save $1,800 on health insurance

However, I'd like to shore up my current spreadsheet done for the 10/31/15 RE date and then redo both to show you the whole picture.  When I get that done I'll put them side by side.

[former player]

You say you want a post-retirement income of $93,000 per annum.   If you want that level of income for the rest of your life, you are not there yet, as your figures for 2016 contain a number of "cheats" -

1.  You are counting "$28,500 savings from 2015" which will not be available in the future.
2.  Your pension and 401k amounts are pre-tax.
3.  $2,400 is being taken from cash investments which are probably not generating 4% after inflation, so this is not long-term sustainable.
4.  $10,400 is child support which has a limited number of years left.
5.  You haven't allowed for potential voids and other large expenses on the rental.

On the other hand, if you put $148,500 (your 2015 savings plus cash investments) into the stock market you get a permanent $6,940 income at 4%.  Then add in your pension, 4% from your existing investments, annuity, $6,000 wife's income, $7,700 for the rental, then calculate the tax payable, you have an income you can rely on for the forseable future, with a booster from the child support for the next few years to make it all even safer.  Could you live on that?

Former Player - good questions that have me doing just what i need - and that is to dig deeper to ensure that I'm not to far off.  If you still see holes please let me know, as I am not being defensive in my responses, just trying to give a better picture.  After all, this is a scenario where I don't touch my stash and doesn't include the couple of offers to start some consulting work, and my own business (which I plan to do) to have fun and add a cushion.  I make good money now, but want to roam the counter, do other things for money, and get out of the public eye (that is a very brief rendition of why I want to leave).

I'll give a little more information that hopefully will round out the discussion:

1. My income for 2015 will be about $130,000 after taxes so I have a lot to carry over. to 2016 and beyond (if I stay at needing $93,000/year in income;
2. Ouch on the pretax as I probably need to reduce those to after tax - do you agree?  BTW - it is actually a 457K (not 401K) and I can take it out penalty free anytime I officially retire;
3.  I agree with you that 4% SWR is not sustainable as it has been more like 2% before factoring in inflation.  Would you or anyone else suggest a better short term SWR;
4.  I reduce the child support throughout the scenario, and make up for it with a little more carry-over (in 2020 it all runs out), a slightly increased rental income and the DW's income; and
5.  Could be a big ouch on the rental, but I factor in a small amount of maintenance each month which I have not had to use in years.  The AC was just replaced and the house is in good shape.  The current renter looks to stay a number of years.  However, I agree with you as this part could go haywire.

I do need t add that I have a pretty good stash of cash, can bring in additional income if necessary, but mainly want t see if I could RE if "all goes well."

As to your lat question "could I live on" what you described and the answer is yes, I could, but DW maybe not.  It might depend on if we could reduce our spending more once I retire.  I have that stuff pretty optimized so far.

BTW - great big thank you and looking forward to any additional comments.

Nothing much from me to add at the moment.  You are putting in the work to get a good handle on solid financial figures, which is what you needed.  After that it's going to be a judgement call, but I suspect you'll be fine if you retire in October as you first proposed.   You'll have a good amount of solid income, some temporary sources of income (child support, using up your cash stash) some potential additional sources of income from working and some expenses which will be going away (child leaving home, mortgage paid off, possible reduction in food expenses).  That looks to me as though it all adds up to "retirement here I come".

The only thing I would say is that you seem to run some very high cash balances which aren't giving you much return, so you might like to think about putting them to work in investments and keeping a smaller emergency fund in cash, rather than having two years' expenses hanging around in cash.  But if having the cash available makes you feel better about retiring, then keep the cash available!

[Rollin]

Nothing much from me to add at the moment.  You are putting in the work to get a good handle on solid financial figures, which is what you needed.  After that it's going to be a judgement call, but I suspect you'll be fine if you retire in October as you first proposed.   You'll have a good amount of solid income, some temporary sources of income (child support, using up your cash stash) some potential additional sources of income from working and some expenses which will be going away (child leaving home, mortgage paid off, possible reduction in food expenses).  That looks to me as though it all adds up to "retirement here I come".

The only thing I would say is that you seem to run some very high cash balances which aren't giving you much return, so you might like to think about putting them to work in investments and keeping a smaller emergency fund in cash, rather than having two years' expenses hanging around in cash.  But if having the cash available makes you feel better about retiring, then keep the cash available!

Maybe I wrote it incorrect when I said "cash invested" resulting in the (corrected) $4,320 in returns.  For the October estimate $10,000 is in a Vanguard account and the rest ($98,000) is invested in a income producing account looking for moderate growth (with fees that are too high!).  Would that change your comment?

As far as the carry-over from year to year, I would invest those (conservatively) as well, but I have not added that to my spreadsheet (it's getting complicated!).  I also have a vacation payout of over $20,000 that I'll use to purchase a piece of equipment that will allow me to generate some (fun) income.

Another point is that once SS kicks in we'll get a pretty significant raise.  So that means that I only have to have this sustain us until 2022-2023.

[Rollin]

Here is my “situation”:

I’d like to officially RE on October 31, 2015 (30 years with the “company” and 54 years old), but I am unsure of the “numbers” that I have put together and would like the FI part to be true.  I’d like to know if these FIRE numbers sound reasonable to those of you that have done this before, or at least are very familiar with these scenarios.

My goal is to cover what I consider our normal expenses, plus have $24,000 remaining/year.  What I consider our normal expenses are as follows:

I have added below what would happen if I stayed almost OMY (shown underlined next to the original RE on October 31, 2015 numbers.)

Expenses for October 31, 2015 vs. April 16, 2016 (no real change)

$30,500 - for my home (includes mortgage, insurance, taxes, power, water, and maintenance) – only debt
$3,950 - for our rental (insurance, taxes, and maintenance) – it is paid off
$2,280 - for “communication” (internet and phones – no TV!)
$9,400 - two vehicles, one motorcycle, and one boat (fuel, insurance, maintenance)
$19,000 - for groceries and eating out (family of 5, multiple facepunchable, but I’ll address when I RE)
$4,000 - post-retirement health insurance for the two adults

$69,000 – total “normal” expenses

My mostly after-tax income from 2015 will be:

Income - October 31, 2015 vs. April 16, 2016

$0  - for current employer (FIRE !!!)
$28,500/$36,000 – savings to carry-over from 2015
$26,200/$27,100 – pension (pre-tax)
$12,000/$12,800 – 457K of $300,000/$320,000 at 4% SWR (pre-tax)
$4,320/$4,440– other $108,000/$113,000 cash investments at 4% SWR (pre-tax)
$16,600 – life insurance annuity (lifetime payout, no principal or SWR applied) – not taxable
$10,700 – DW’s child support (stops in a few years) – not taxable
$6,000 – DW’s income (pre-tax)
$14,400 – one SF rental income (pre-tax)

$125,600/$133,200– total income for 2015

I should add income expected from year-to-year if I RE October 31, 2015 or April 16, 2016:

RE scenario October 31, 2015/April 16, 2016

2015 - $125,600/$133,200
2016 - $91,500/$93,300
2017 - $93,400/$94,300
2018 - $94,100/$95,000
2019 - $91,200/$92,200
2020 - $88,100/$89,000
2021 - $89,000/$89,900
2022 - $103,700/$104,600 (DW's SS licks in)
2023 - $125,800/$126,700 (my SS kicks in)

The expenses for these years should start to be reduced as the kiddies move out and on, but I have kept them constant in my spreadsheets to be conservative.  You can see why I need to consider carry-over from year to year if my goal is to have income of $93,000 minimum each year.